5 Dividend Stocks Ready to Give You a Raise

BALTIMORE ( Stockpickr) -- So far, earnings season is off to a good start -- and that's a good thing for dividend investors.

Even though investors have been expecting the worst for stocks' third-quarter numbers, most companies are beating Wall Street's estimates for the quarter. Around 75% of the stocks in the S&P 500, for instance, have beaten earnings estimates from analysts so far. That's an indication that analysts are still far too pessimistic right now.

Instead, investors have fixated on the misses. Everyone heard about the advanced earnings mistake at Google (GOOG), but fewer folks have been paying attention to the earnings wins in three quarters of the big names out there.

I've said before that earnings season and dividends go hand in hand. So, if earnings are outperforming analysts' expectations, it stands to reason that dividends are too. This week, instead of chasing yield, we'll focus on stepping in front of dividend hikes for the coming quarter. In other words, these five firms are getting ready to boost dividends; they just don't know it yet.

In the past few months we've had some stellar success in finding future dividend hikes just by zeroing in on a few key factors. Now we'll look at our crystal ball and try to do it again.

For our purposes, that "crystal ball" is composed of a few factors: namely a solid balance sheet, a low payout ratio, and a history of dividend hikes. While those items don't guarantee dividend announcements in the next month or three, they do dramatically increase the odds that management will hike their cash payouts, especially as investors start to get antsy about this late-2012 rally.

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It's been a good year for biotechnology giant Amgen ( AMGN); shares of the $69 billion firm have rallied close to 40% since the start of 2012. While Amgen may not get the attention of some of its big(ger) pharma peers, the firm is a blockbuster maker, with more than five drugs under its belt that each bring in over $1 billion in annual sales.

Currently, Amgen pays out a 36-cent quarterly dividend, adding up to a 1.6% yield at current price levels. Now I think this firm is due to give investors a raise.

Amgen's expertise in biotechnology-based therapeutics is unique among firms its size. It gives the firm an advantage over smaller rivals in the amount of capital it's able to throw at a project. Like its more traditional peers, the firm does face risks from patent drop-offs over the next few years, but it also boasts an attractive pipeline of around 20 new drug compounds. That pipeline should help to make up for generic competition on Amgen's existing drugs.

Meanwhile, the company is generating tons of cash. Around a third of each sales dollar Amgen earns gets converted into free cash, the result of hefty profit margins and economies of scale in Amgen's business. That free cash gives Amgen plenty of ammunition for a dividend hike this quarter.

Ford Motor

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Even though Ford Motor ( F) isn't enjoying the kind of year shareholders are seeing at Amgen (shares of Ford are down 3% year-to-date), this Detroit car giant is still looking solid from a fundamental standpoint right now. And that could mean a hike to Ford's 5-cent quarterly dividend payout in the near-term. Here's why.

Ford has made some huge inroads at making great cars again. In the last three years, it's introduced new platforms for all of its most popular models, revisions that have been extremely popular with the public and with car reviewers. Ford's story is one where it's truly that simple: Better cars mean better sales. The firms' ability to successfully negotiate with its union is the other half of the equation; after all, sales are meaningless if the firm can't earn a profit.

While the U.S. is definitively Ford's biggest car market (followed not-so-closely by Europe), emerging markets have been looking increasingly promising lately. In particular, Ford's numbers in China show that the firm is growing at a breakneck pace in the People's Republic, which bodes well for top-line growth in the years ahead.

And a solid balance sheet -- with a return to an investment grade rating -- bodes well for a hike to Ford's 2% dividend payout in the next quarter.

Aetna

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Aetna ( AET) is a managed health care firm that provides benefits to more than 22 million Medicare, Medicaid, and private health care patients across the country. That 22 million number is important -- size matters in the health care industry. Because Aetna has such a big patient rolls, it's able to negotiate harder with care providers to bring down the rates that it ultimately pays out.

The firm has taken some of the risks off of its own balance sheet by pushing its services as a health care plan administrator. On the commercial side, it means that Aetna provides its network and resources to employees at a firm, but it's the employer who bears the risks of underwriting a health policy. That, coupled with Medicare and Medicaid give Aetna a lucrative market that's less burdened by regulation and less filled with the risks of poor underwriting.

While health care reform legislation has been a big concern for all insurers in recent years, Aetna has actually used new bills to its advantage as a bargaining chip, squeezing out concessions from its contracted healthcare providers. That's a fact that's showing through in AET's margins in 2012.

With plenty free cash generation on tap, AET looks likely to make a boost to its 17.5-cent quarterly dividend payout in the near-term. Aetna yields 1.6% right now.

Mattel

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Toy maker Mattel ( MAT) is another name that's pushing higher in 2012. So far this year, shares of the California-based firm have rallied more than 36%. Mattel owns an impressive portfolio of toy brands, ranging from Barbie to Fisher-Price and Hot Wheels. The firm also has licenses to produce toys under popular franchises such as Batman, Disney and Dora the Explorer.

Yes, Mattel may be a toy maker, but it's not playing around with its dividend payout. Right now, the firm yields 3.28% thanks to a 31-cent payout each quarter.

MAT owns some of the most attractive brands in the toy industry, a business where brand is everything. One of the biggest tailwinds kicking at Mattel's back is consumer spending. Recently, consumer sentiment pushed above pre-recession levels, pointing to increase comfort in discretionary spending among buyers. Since toys tend to be one of the most discretionary categories on store shelves, that economic stat is a very good sign for Mattel's top line.

Finally, Mattel is in solid financial shape. The firm has a strong balance sheet with plenty of liquidity to keep the lights on in Barbie's Dream House even if times get tough again. The firm also enjoys deep margins and throws off considerable cash from its operations.

Both of those factors help to support another impressive dividend payout in this stock. With Mattel's fourth-quarter dividend already announced this week, the first payout of 2013 looks like a likely hike.

McCormick

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Maryland-based Spice and seasoning stock McCormick ( MKC) is another stock that looks ready to boost its dividend payout in the next quarter. Currently, MKC pays out a 31-cent check to investors each quarter, just shy of a 2% yield. Stair-step improvements in sales and profitability should help to increase MKC's dividend in kind.

McCormick owns an attractive stable of brands found in the grocery aisle. In addition to the firm's namesake spices, Zatarain's, Old Bay and Simply Asia are all well-known brands in MKC's stable. McCormick's reach goes beyond grocery -- it also serves restaurant chains and packaged food firms that use its seasonings in their respective products. Because few firms can boast MKC's operational expertise with spices, it's a go-to firm for clients who need help developing and mass-producing the seasonings they use in large-scale food manufacturing.

International sales should continue to be a big growth engine for McCormick. While the firm has kept its share of sales from abroad nearly constant at 40%, it's managed to grow its emerging market sales by around 50% in the last year. Now these high-growth markets contribute 15% of total revenues, a number that should continue to grow as MKC pursues local demand for spices.

That growth should help to support bigger dividend payouts in the next quarter.

At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.